Governor proposes tax cuts in 2-year, $63.3B Ohio budget

Residents, businesses to see rebates

Ohio Gov. John Kasich is to bring his budget presentation to Lima later this week.

COLUMBUS — Ohio’s income and sales taxes would be slashed by $1.4 billion and the sales tax’s base broadly expanded under a $63.3 billion, two-year budget proposal Gov. John Kasich unveiled Monday.

Despite his dislike of President Obama’s health-care law, the Republican governor also has decided to take on some members of his own party by agreeing to expand Medicaid, in accordance with the federal law, to provide coverage to up to about 450,000 more uninsured Ohioans over the long run.

Governor Kasich’s plan includes his controversial proposal to borrow against future Ohio Turnpike tolls to finance highway and bridge construction across Ohio.

Now the ball moves to the Republican-controlled General Assembly, which has until the current fiscal year’s June 30 end to put its brand on the state’s taxation and spending plans for 2014 and 2015.

Mr. Kasich wants to phase in, over three years, a 20 percent personal income tax cut for individuals, starting with a 7.5 percent cut this year. The income tax on the first $750,000 in earnings for small businesses would be cut by 50 percent and the state sales tax by half a penny to 5 cents on the dollar.

On top of that, Ohioans and small businesses would share in $400 million in one-time automatic income-tax rebates for the 2013 tax year because a surplus-fueled balance in the state’s budget reserves would trigger a provision in state law that has been dormant for about a decade.

The proposed budget calls for a 30 percent broadening of Ohio’s sales-tax base to include nearly all professional services except for such services as housing, health care, education, construction, and social services such as child day care and elder care. That means legal advice, lobbying, architecture, accounting, and other professional services would be subject to the tax for the first time.

The governor has again proposed higher severance taxes for natural gas and oil exploration using hydraulic fracturing. That would take advantage of an anticipated drilling boom, primarily in eastern Ohio.

Cuts personal income taxes over three years for individuals by 20 percent, or $2.1 billion, across all income brackets

Cuts income taxes for small businesses by 50 percent on the first $750,000 of earnings for savings of $1.9 billion over three years

Broadens sales-tax base by 30 percent to include legal, lobbying, architecture, accounting, and numerous other professional services not now taxed. The state estimates that this will add $53 billion to the sales-tax base in 2015, but will be partially offset by the existing $175 billion of the base that will be subject to the half-penny cut.

Cuts Ohio’s statewide sales tax rate by half a penny, to 5 cents on the dollar, for savings of $2.4 billion over three years

Triggers an automatic $400 million in income-tax rebates to Ohioans for calendar year 2013

Partners with the federal government under “Obamacare” to expand Medicaid to mostly low-income parents earning up to 38 percent over the federal poverty level

Borrows against future Ohio Turnpike toll revenue to finance $3 billion in new highway and bridge construction across Ohio

Provides a modest increase in local government subsidies and allows up to a 10 percent boost in local sales tax collections

Boosts funding for K-12 schools by $15.1 billion over two years, with emphasis on providing more aid to poorer schools while expanding support for charter schools and vouchers to attend private and religious schools

Shifts focus of funding for public universities and colleges away from enrollment toward rewarding graduation rates, keeping graduates in Ohio, and recruitment of high-quality, nontraditional, and at-risk students

Pushback expected

Mr. Kasich argues that reducing the income tax for small businesses at a greater rate than for individuals will free up capital for hiring and make businesses more competitive. But he knows that some of his plans, particularly expanding the sales tax, will likely face a major pushback from “special interests” affected by the changes.

“When they win, the people of the state lose,” Mr. Kasich said. “When they win, the tax cut for the state comes down.”

State Rep. Matt Szollosi (D., Oregon), the No. 2 Democrat in the House, said, “The governor has got his hands full trying to see a number of these proposals through the Republican majorities in the legislature.”

The two-year general-revenue budget is up about 14 percent from $58.8 billion in the current budget. The administration stressed, however, that the increase is largely because of additional K-12 education spending and the expected addition to the Medicaid rolls of people who are eligible to join but, for whatever reason, have never applied.

They are expected to join now as a result of the federal-health insurance mandate, but they will not be covered by the enhanced reimbursement the federal government has promised.

Spending across most of the rest of state government is proposed to largely be largely flat.

Ohio’s year-end budget surplus is expected to approach $1 billion, and the state received $500 million last week from its lease of its profitable liquor enterprise to its private JobsOhio economic development corporation.

The combination would boost the state’s “rainy-day fund” budget reserve balance to about $1.9 billion. That’s above the $1.5 billion threshold that would automatically trigger $400 million in income-tax rebates to taxpayers.

Local effects

The budget holds a small increase in basic subsidies for local governments, and sales-tax expansion should also increase collections under counties’ “piggyback” sales-tax rates on top of the new 5 percent state rate.

But the state plans to adjust local tax rates to ensure they do not receive more than a 10 percent boost. Lucas County’s total sales tax rate is 6.75 percent.

Jen Sorgenfrei, spokesman for Toledo Mayor Mike Bell, said the administration will digest the voluminous budget information in coming days.

“We’re more optimistic because it doesn’t do anything else [negative] with local government funds,” she said. “There was a lot of controversy from the last budget cycle, and lawmakers are not inclined to mess with that anymore.”

In the past, Democrats have generally been critical of across-the-board income-tax cuts as disproportionately benefiting the wealthy.

“We’re talking about a 20 percent, across-the-board rate cut for all nine brackets, which would reduce the top marginal rate from 5.9 percent to 4.75 percent,” Mr. Szollosi said. “That’s a significant tax cut for multimillionaires, and it’s something that will cause us to take issue.”

State Sen. Edna Brown (D., Toledo) said she is waiting for more information before casting judgment on the tax choices Mr. Kasich has made.

“They’re not bad choices by any means,” she said. “Anything we can do to stimulate the economy is a good thing. I have not had the opportunity to really review the budget. I’ve heard some good things. I’ve heard some reservations, but I’m hopeful. I’m optimistic.”

The plan to wring cash out of the Ohio Turnpike is designed ultimately to help finance a total $3 billion statewide construction agenda through state funds and matching federal dollars.

But while the Kasich administration stressed again Monday that 90 percent of the funds generated by the turnpike bonds would be spent in northern Ohio, Transportation Director Jerry Wray said he hopes lawmakers don’t tie the state’s hands by writing that 90 percent figure into the law or creating a statutory definition of “northern Ohio.”

Mr. Kasich last week announced his $15.1 billion, two-year funding plan for K-12 education. That plan would channel greater state support to poorer districts and would target funding toward programs for gifted and special-needs students, reading programs, and students for whom English is a second language.

Rep. Tim Brown (R., Bowling Green) recently traded his Wood County commissioner hat for that of a state representative, and he now will play a role in writing the kind of budget he used to have to live by.

The proposed budget “certainly is much more comprehensive than just the local government fund, but the goal is the same: to have a budget that allows us to provide core services to citizens without overburdening the taxpayer,” Mr. Brown said. “I’m pleased, with what I’ve gleaned so far, that there are no further cuts for local government or to education.

“The governor prides himself on putting forth innovative proposals in a state that has been fundamentally struggling for decades, as evidenced by our Census information,” the freshman representative continued. “Decade after decade, Ohio has lost citizens and hemorrhaged jobs to other states.”

Mr. Kasich is expected to bring his budget road show to northwest Ohio later this week, and on Feb. 19 he is scheduled to give his State of the State address in Lima.

Contact Jim Provance at: jprovance@theblade.com or 614-221-0496.

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